Posts Tagged ‘SHIP’

One of the most common questions we get asked as equity release advisers is whether a lifetime mortgage is ‘flexible’ enough to meet any future change in circumstances?

Having reached retirement, experience has taught us all that life can be full of surprises and quite rightly this question is always high on the agenda.

This article has been written using my 10 years equity release experience & how I have helped guide my clients towards their ultimate goals, but at the same time alleviating any inhibitions surrounding equity release and moving home in the future.

The most common apprehensions regarding flexibility and moving or buying a new home can be summarised as follows:

Can I move home if I have already taken out an equity release plan?

Can I use equity release to purchase a new property

How much can I raise on a new home using maximum equity release schemes?

Can I transfer my existing equity release scheme to a new home?

Can I still take out equity release if I downsize?

If moving house, is it worthwhile transferring, or taking out a new plan?

So how does an equity release adviser dispel the fears and help their clients overcome the concerns that a release of equity mustn’t feel like a noose around their neck?

Considerations on Moving Home from an Equity Release Advisers Point of View

When we consider the question of a possible future house move, we can divide this into three very different scenarios; each one deserving separate consideration in its own right: –

The first equity release scenario captures the proposition of using a lifetime mortgage, or home reversion plan to help fund the purchase of a new house

Lastly, we explain the advisers perspective on what options are available to a client with their existing equity release mortgage, upon moving home

Scenario 1 – Can I use Equity Release to help fund a house purchase?

An increasing number of enquiries seem to be coming in from people who are looking to move home, and this can be for various reasons. Some are looking to move nearer to their family for support, others are looking to downsize to repay loans and mortgages. Still others simply want to buy that bungalow they had always dreamed of for when they retired.

In the majority of cases, the best way to use equity release schemes to help fund a house purchase is to transact them simultaneously. This means involving an equity release application to be used as part of the legal process to buy. Consider this theory as exactly the same principle as using a conventional residential mortgage to help buy a new property.

In essence, by taking equity release at the same time as house purchase will save money by not duplicating the legal work, should a release of equity be needed at a later date. The rationale is that only one set of legals are required should equity release & the purchase be transacted simultaneously. However, if a release of equity is taken post purchase, then two set of legal costs are incurred; at the time of the house purchase, but then again later when equity release is done in isolation.

The rules are fairly straightforward, whether you use a lifetime mortgage or a home reversion plan for this purpose. A given percentage of the value of the proposed purchase property would be made available, depending on the age of the youngest applicant, and some or this entire figure would be sent to the conveyancer on the day of purchase to enable completion to take place.

Case Study:

Mr & Mrs Townley are aged 65 and looking to buy a property nearer to their daughter at a cost of £200,000. Their own home has been sold for £180,000 and, bearing in mind the additional costs involved, they feel they would need a further £30,000 to complete the purchase.

Following research, their lifetime mortgage adviser has recommended the Aviva Lifestyle Flexible Option where they could release upto 25% of the value of their new property. This potentially could provide them with a maximum release of £50,000.

They decided that they only want £30,000 of this for now but, as they don’t know what the future may hold, they ask for a cash reserve facility to be set up so that they could access the other £20,000 in the future, just in case they need it later.

Scenario 2 – Can I move home AFTER releasing equity on my home?

This is a different question altogether, but is definitely another one that comes up most of the time. Most people want to know before they enter into an equity release agreement, what would happen if they moved home in the future? This could be downsizing when one partner is left on their own, or moving into sheltered accommodation, if health dictates it becomes necessary.

First of all it is important to acknowledge that any lender that is a member of the Equity Release Council (which recently replaced SHIP) will allow the transfer of an equity release plan to a new, suitable property. Portability is an important facet of all equity release schemes.

Important considerations for anyone releasing equity include what they think MAY happen, or which is MOST LIKELY, as none of us know what’s around the corner.

If downsizing is the most likely outcome, then it should be very easy to find a lender that will allow this with the facility to move the equity release plan at the same time. A valuation would be carried out on the new property and the maximum configured equity release would be calculated. Having access to a lifetime mortgage calculator would be an advantage.

If the amount currently owed, is in excess of the maximum amount available for release on the new property, then the excess would need to be repaid from the profit made through selling and buying the cheaper property.

Of course some people want to have the flexibility of repaying the loan in full if they downsize later on and this is where some care is needed from outset to ensure this is possible.

As lenders become more attuned to what is important to equity release customers we are seeing some innovative thinking and I for one hope that this is a trend that will continue to grow over the coming years.

Scenario 3 – What should I do with an existing equity release if I want to downsize or purchase new?

This scenario is a continuation of the previous section, albeit taking into account in greater detail the options available & what should be done with an old equity release plan. It would be amiss of any adviser to automatically assume it would be in the client’s best interest to port an old lifetime mortgage or home reversion plan to the new property.

This is a key opportunity for an overall review of the older plan to establish its competitiveness in today’s equity release environment. From my experience of working at Norwich Union Equity Release (latterly Aviva), I am aware of older legacy equity release plans that in today’s world are outdated and uncompetitive.

My Experience of Norwich Union’s Legacy Equity Release Plans

The forerunner of all of Aviva’s equity release plans was called the Capital Access Plan. The Norwich Union Capital Access Plan had an interest rate, not charged against the balance, but calculated against the property value escalating over time. People with these plans who have seen a large increase in property value, will also had seen a proportionate increase in their equity release balance.

Another legacy plan which is no longer available is the Norwich Union Index-Linked Cash Release Plan. This a scheme which offered a maximum equity release lump sum from age 55, but with an interest rate linked to Retail Price Index (RPI). This Index Linked Cash Release Plan had a minimum interest rate of 4.89%, rising to a maximum rate of 10.14%. The calculated rate was dependent upon on the annual change in RPI which was then added to the minimum rate of 4.89%. Hence, this scheme did not provide as much certainty as today’s lifetime mortgage fixed rates.

From thereon in, Norwich Union or Aviva Lifetime Mortgage schemes had interest rates over 8%pa and potential early repayment charges of 100% of the original balance borrowed. Its schemes such as these that need assessing as to whether they should continue, or if favourable, could be repaid upon sale & a new plan taken upon simultaneous purchase of the new property. With rates today from Aviva as low as 5.68% annual, it could make sound financial sense to consider a new scheme which could save many £1,000’s over time by switching.

Free Initial Consultation

It is therefore essential for an experienced independent equity release adviser to undertake a full review of the entire situation & provide an impartial recommendation as to what is best advice moving forward. This will involve requesting an upto redemption statement from the existing lender, analysing the existing scheme & importantly assessing all the features including potential early repayment charges.

Equity Release schemes that were taken out some time ago are usually not as competitive, or flexible as plans around today, given the period of low interest rates incumbent over the last 2-3 years.

I would advise ANYONE thinking of moving to take advice as it may well be cheaper to change lender than staying with your current one and transferring your plan to the new property. The only way of finding this out is to take advice from an Independent Equity Release Adviser that is able to research the WHOLE of the market. By conducting a switch plans analysis, Equity Release Supermarket can address whether it would be worthwhile, or not, to switch equity release plans when moving home.

Examples of lenders already attuned to the option of downsizing – Hodge Lifetime

At the moment if anyone is thinking of downsizing in the future and repaying their equity release plan in full, then serious consideration should be given to a new plan such as the Hodge Lifetime Flexible Mortgage Plan.

This plan allows the borrower to repay the whole amount WITHOUT PENALTY if they decide to move home & downsize, as long as this is at least 5 years after inception of the plan.

Alongside this downsizing protection option is the fact that, if something unforeseen should happen and you need to move and repay during the first 5 years then the Hodge Lifetime penalty for doing so would be capped at 5% of the initial release in year 1, 4% in year 2, 3% in year 3, 2% in year 4 and then 1% in year 5. Significantly, the Hodge Lifetime penalty is more favourable than many of the gilt linked product related early repayment charges.

I believe this gives an added degree of flexibility for equity release consumers, and I hope it’s an indication that lenders are changing the way they change tact & begin providing greater flexibility as the need to move home in the future increases.

The fact remains that it is possible to move home and it’s imperative that you get the right advice when considering equity release initially AND when thinking of a house move as well.

Summary

It is probably one of the most important decisions you will make financially, as the decision you make now will not only impact on your future, but also your children & grandchildren’s future.

These are the reasons why we at Equity Release Supermarket always offer a free, no obligation, initial consultation which can be in the comfort of your own home or over the telephone, whichever is preferable.

This initial consultation gives us the chance to ask our clients about their objectives as well as their future plans, so that we can tailor any Equity Release scheme we recommend to each individual set of circumstances.

For your FREE, NO OBLIGATION, initial consultation (whether it’s your first time or if you want to review your current scheme) please call Mark on 07966 889597 or e-mail mark@equityreleasesupermarket.co.uk

It’s been a long time coming, as the song goes but Scotland is at last catching up with the rest of the UK when it comes to the uptake of equity release schemes.

The reason the Scottish equity release market has not grown as quickly in the past as the rest of the UK is that a lot of Scottish homeowners have very close family ties and traditions and want to leave their property and estate as inheritance for their families and have been happy in the past to either down size or make do.

One of the common objections to equity release in Scotland was the loss of inheritance for the family. However, with the new range of equity release mortgages this loss of potential inheritance can be resigned to the past.

In the last year alone, many changes have taken place within the equity release market. All equity release schemes Equity Release Supermarket recommend still have the ‘SHIP’ standard – a ‘no-negative equity guarantee’ built into them. SHIP has now come under the auspices of the Equity Release Council in maintaining this important protection feature.

Latest equity release schemes

In addition to the no negative equity guarantee, new innovative plans have been introduced with options such as the Inheritance Protection Guarantee, where a percentage of the property value can be ring fenced to protect the family inheritance. This provides peace of mind in protecting a fixed final amount of the property value to be left as an inheritance for the family at the end of the day.

Hodge Lifetime have recently brought out a roll-up lifetime mortgage plan where they will allow up to 10% of the capital borrowed to be repaid each year by cheque, again a way to protect the loan from the effects of the roll up of interest. Not only can the interest be repaid, but additionally a proportion of the capital by paying the maximum 10%pa in repayments. Effectively this renders the Hodge Lifetime scheme a capital & repayment equity release mortgage!

Stonehaven have also moved into Scotland with an interest only lifetime mortgage. The Stonehaven Interest Select plans operate on an interest only basis with a balance that remains constant throughout the mortgage term. This continues so as long as the monthly payments are made, resulting in a loan that will never be more than the initial amount at the start of the plan.

These Stonehaven equity release schemes in Scotland are eventually repaid from the sale of the property. The interest rates are currently the lowest we have seen from Stonehaven since they started over 6 years ago at just 5.99%.

Scottish interest only mortgage enquiries

From the number of interest only lifetime mortgage enquiries Equity Release Supermarket now receive in Scotland, many people have also noticed this, and taken advantage of these low interest rates which are then fixed for life. Providing security, not only for inheritance purposes, but also in fixed lifetime monthly payments is something that the over 55’s in Scotland are looking for.

Equity release plans are not only weathering the economic downturn, they are offering a much needed lifeline to homeowners in this time of austerity. It may not be the best option for everyone in Scotland and by seeking independent financial advice it is important you also consider any alternatives beforehand.

Nevertheless, if you are sitting with a lot of equity in your home and you are over 55 years of age why deny yourself a good lifestyle in retirement, when unlocking some of the equity in the home could help make life a lot more comfortable for you, or your loved ones.

In this growing equity release market with new providers and new plans coming along it is more important than ever to get the correct advice from a specialist dealing in equity release such as the Equity Release Supermarket.

If you wish to find out more about any of the plans mentioned then do not hesitate in making contact with the author of this article – Nigel Hall who would be more than happy to help.

With news that equity release schemes are becoming more of a mainstream mortgage for the over 55’s, we look at how the equity release market is regulating the protection of its consumers.

We have all heard the stories of how equity release schemes are bad for you and the local gossip columnists berating the expense of these plans. However, the equity release industry has come a long way since the original equity release plans were offered in 1965 when the average house price was approximately £4,000!

Why was regulation introduced?

It was the earlier version of equity release schemes that started creating a stir. Back in 1988 a new type of plan was introduced called a ‘home income plan’. They relied on using two financial instruments – an annuity or investment bond to provide an income, which in turn paid an interest only mortgage that raised the initial capital. The annuity income would have been sufficient to not only pay the mortgage but also provide additional funds to supplement the applicant’s income.

In 1988, the principles of the scheme were sound. However, there was no account taken of how future interest rates may change after a years of economic stability. Therefore when interest rates rose steeply in 1990 and property prices fell significantly, there were unfortunate cases of people experiencing negative equity. Additionally, as a consequence of higher interest rates, the annuity income became insufficient to cover the monthly mortgage payments, thereby wiping out the residual personal income also. These home income plans were subsequently banned.

The launch of SHIP

Such disastrous events were the catalyst for greater regulation of these equity release type products and led to providers in this market forming a coalition. This was heralded as SHIP (Safe Home Income Plans) and was introduced in 1991 to protect the holders of such schemes and their beneficiaries.

Further bad news

However, the problems were not answered immediately. During the mid 1990’s we had certain banks – Barclays and Bank of Scotland introducing SAM’s (Shared Appreciation Mortgages). These schemes worked on the basis that the mortgagee released an amount of equity in return for a proportion of the house value. No monthly payments of interest were required. However, the banks took not just the current value, but also a percentage of the future value.

You may recall that the mid to late 1990’s house prices thereafter soared. The bias was obviously in the banks favour (no changes there) to the tune of approximately three to one in their favour in any property escalation.

These schemes were consequently withdrawn and we are still hearing stories in the news today about people who took out SAM’s & have no redress financially from the FSA.

Step forward the FSA

Sooner, rather than later the Financial Services Authority stepped in to regulate the market & by 2004 the Government had brought forth legislation protecting lifetime mortgage customers. The protection didn’t just stop with the schemes; financial advisers now came under the auspices of the FSA and had to meet certain criteria to be able to provide equity release advice.

The FSA then introduced the Financial Ombudsman Service and put the FSA Compensation scheme in place to recompense people who had been mis-sold. Previously, applicants only had the courts as protection and taking on the banks could prove an expensive exercise.

By 2007, Home Reversion schemes were also governed by the FSA leading to stricter controls on all types of equity release schemes.

By this time some of the major equity release companies such as Norwich Union (now Aviva) and Northern Rock had joined SHIP. Equity release schemes started going through innovation with drawdown equity release plans becoming popular and being released initially by Prudential, Just Retirement & Hodge Lifetime. With mixed attitudes towards beneficiary’s inheritance, we had the introduction of interest only lifetime mortgages from Stonehaven which allowed some, or all of the interest charged being paid off.

So, not only has the market emphasis changed towards regulation, but also the products themselves have seen massive changed in concept and design.

Further peace of mind – legals

So far we have talked about how the FSA has helped regulate the market and the equity release companies themselves designing better products, but what about the equity release process itself?

The legal aspects of equity release have now been indoctrinated within the SHIP rules. It is here that extra layers of protection have been provided by the equity release solicitors and provide the final checks of the equity application process. From checking the identity of the applicants, establishing genuine reasons for the raising of capital, particularly when gifting to family and ensuring legal title & conveyancing thereof, solicitors have an important role to play.

Under SHIP rules, two solicitors must be involved – one for the applicant & the second on behalf of the lender. This is to ensure there is no conflict of interest and protect both the lender & equity release customer. The applicant’s solicitor must also sign a SHIP certificate to state he is satisfied that all aspects of the equity release have been brought to their attention, implications & that the rules of ‘caveat emptor’ persist. Until the SHIP certificate is signed then no equity release application can complete.

SHIP update

Further rebranding of SHIP was felt necessary as the market grew and a louder voice was felt necessary for the equity release market as a whole. After much debate it was proposed that ‘The Equity Release Council’ would provide the new voice of the industry. SHIP has now moved on and hopefully the feeling and attitude to all things equity release. It has travelled much distance since 1965 and overcome some dark days along the way.

Nevertheless, this is a new dawn for the equity release industry. With greater trust, greater demand and greater product innovation still to come the future is looking bright for the protection of its customers.

If you are considering equity release and need assistance on receiving the best equity release advice call the team on 0800 678 5159.

The equity release market is currently at its peak with a record number of applications. For those aged over 55 and are considering releasing equity, here we review how the equity release application process works, how long it takes and the involvement required.

The equity release sales process is now the most streamlined since the product was originally conceived. Increased competition in the marketplace from new providers has resulted in equity release companies looking at ways to steal an advantage. As better interest rates for customers are now also on offer and today’s equity release plans are much more flexible than those available until a few years ago, never has there been a better time to consider a release of equity for the over 55’s.

Timescales

An equity release application usually takes somewhere between 6 to 8 weeks for a lifetime mortgage scheme and 10 to 12 weeks for a home reversion plan, assuming the title on the house is clear. The actual amount of time your equity release process takes, also depends largely on how efficient and experienced your solicitor is. Applying for equity release involves legal paper work, which needs to be handled by a solicitor and solicitors with expertise in equity release plans can help to avoid any potential delays in your application.

The First Steps

The whole process starts with completion of an application form which must come in conjunction with financial advice as NO equity release provider will accept an application without it. At this stage any fees required which would be clearly stated in the Key Facts Illustration (KFI) would need to be paid. Normally this would include the valuation fee made payable to the lender. Some equity release brokers do charge an advice fee on application; however Equity Release Supermarket would only charge their advice fee upon completion, so beware of paying unnecessary upfront fees.

Valuation

On completion of the application form, it is then submitted to the equity release provider who will instruct a local surveyor to complete a basic valuation on the property. The role of this surveyor is to complete a report which will advise the current market value based on a relatively quick sale. The surveyor’s role will be to assess the local proximity to the property and establish similar properties and the price they had sold for within the last 3-6 months. Additionally, the surveyor will ascertain whether any essential repairs will be needed should the property have material defects that could affect the long term structure or re-saleability of the property.

Legalities

At the same time as application submission, for speed of completion it is wise for the legal process to get underway. Unless a client specifically requests to use their own family solicitor, we would recommend an equity release solicitor from ERSA (Equity release Solicitors Alliance). One of the former members of ERSA is Goldsmith Williams, whose organisation offers a fixed fee agreement with Equity Release Supermarket clients of £395 +VAT & disbursements. Additionally, these solicitors will provide a ‘no completion, no fee’ agreement with our clients which should be considered for any future lifetime mortgage or home reversion application.

The solicitor’s role

Two sets of solicitors must be in place to carry out the whole process. Under Equity Release Council (formerly SHIP) rules different solicitors must be employed on behalf of the client and the lender. Once instructed by the client or broker, the solicitor acting on behalf of the client will send out an initial questionnaire requesting further information. This will include a request for information on whether any mortgage exists currently, the owners to the title, any restrictions, further tenants or major improvements that have been carried out with respective planning permissions. This questionnaire also provides the permission for the prospective solicitor to act on their behalf.

What about existing mortgages or secured loans?

Should any existing charges by way of mortgages or secured loans be present on the title deeds then they must be removed prior to, or upon completion. Any mortgage will usually be settled by the proceeds from the equity release scheme at funds release stage. However, another role of the solicitor will be to establish exactly how much will be required on the proposed completion date. This will be achieved by requesting a redemption statement from the mortgagee, who will provide the current balance and the daily accrual rate of interest being added during the interim period to completion date.

Provider requirements

For an application to proceed through to completion, the lender will carry out certain checks to meet money laundering and the consumer credit act requirements. This will be proof of ID including passport, driving licence or government backed evidence such as your annual state pension letter or Inland Revenue tax code notification. Should none of these be available most lenders will also require a birth and/or marriage certificate as satisfactory proof of who you are. Additionally, proof of address will be required, so a recent utility bill or bank statement will be necessary.

Equity release and adverse credit

Some lenders will carry out credit checks. You may ask why this would be necessary as NO monthly payments are usually required with a lifetime mortgage scheme. The lenders view is that if someone has been negligent with previous credit payments, then there may be a tendency to not look after their property, thus affecting the lenders security.

Nevertheless, there would have to be severe credit problems for a lender to decline an equity release application due to adverse credit. Most lenders will accept previously missed payments, defaults and even CCJ’s (County Court Judgements) on their credit file, unless they are significantly large. Even then, most lenders such as Stonehaven will accept the application as long as the applicant has been forthcoming with an explanation as to why the CCJ’s had been applied. Undischarged bankrupts would usually be unsuccessful with any equity release borrowings.

Latter stages

Upon successful valuation and title checks, the solicitor acting on behalf of the client will set the completion date. Once your equity release scheme has gone through, you can receive the money by having it paid directly into your nominated bank account, or if you wish to save the telegraphic transfer fee (approximately £30), you can receive the funds in the form of a cheque. Depending on the particular scheme, money can be borrowed either as a one-off capital lump sum or by taking ad hoc withdrawals from a cash reserve set up from the outset.

An equity release plan can be a great way to turn the equity tied up within your estate into something tangible and usable. But like any large loan, it has its own risks. Therefore, before you decide to release equity from your home, make sure you speak to your solicitor or independent financial adviser first.

Companies such as Equity Release Supermarket provide the ‘complete equity release service’ whereby we provide guidance to clients from the start to finish of the application process. If you have any questions with regards to the equity release application process please call 0800 678 5159 where a qualified adviser can discuss your requirements.

When it comes to financial planning, it is essential to explore all your options carefully, but even more important is to understand the full implications of your financial decisions today. Equity release proves to be a good option for many people, and if you’re considering a home equity release as an option, it is necessary to fully understand it.

Therefore, decisions made now could be influential in the future should your circumstances have to change. One of these situations would be if you wish to move house in the future. This could be for several reasons: –

Downsizing to a smaller property to raise cash to assist with financial affairs

Moving to a property for mobility reasons e.g. to a bungalow or sheltered accommodation

Move house to live nearer to the children to help with child minding or health care issues

A quick search online can help you find lots of information about equity release. Many equity release brokers have websites with ‘frequently asked questions’ (faq’s) sections that provide basic information about equity release mortgages. Here you can understand the two main types of equity release schemes – a lifetime mortgage and the home reversion plans. These all help the customer understand the potential risks and benefits of equity release plans and therefore form the basis of discussion with the family.

One of the common questions that people have when it comes to equity release mortgages is whether it is possible to move home once you have a lifetime mortgage or even a home reversion plan. The simple answer is yes, as long as the lender approves of the new property and the build criteria meets their acceptable lending policy.

All companies that Equity Release Supermarket deal with are members of the Equity Release Council (formerly the trade body called Safe Home Income Plan or SHIP for short). It is a condition of membership that the scheme is an approved equity release plan, which allows the applicant to transfer the mortgage to a different property.

With home reversion plans, moving is generally more complicated as the ownership of the existing home lies with both the lender and the original homeowner. Moving may involve changing the percentage ownership in the new property. Also, in case of downsizing, the home reversion lender may keep any profit made on the existing house. There are several factors to be considered, and the feasibility of a move will depend on the particular property.

While transferring an equity release lifetime mortgage is simpler, it involves additional costs, as fresh paperwork will need to be drawn up for the new property. Most lenders will require a new application which will involve all the same associated fees; namely valuation fee, application charge, solicitor’s fees and any advice fee charged by your equity release adviser.

There are further considerations when transferring lifetime mortgages which are affected by how much cash was borrowed on the original plan. The reason is that if someone is downsizing, they may need to pay off some of the existing balance on moving to a lower value house. When calculating the maximum amount that can be borrowed on the new valued property, this figure may not be high enough to pay off the balance from the former property.

Therefore, to bring the transfer in line with the lower valued property, a capital sum may need to be paid off the balance. The good news is that this would come from the equity raised by downsizing anyway and there is no penalty upon taking this course of action

Usually, there are no restrictions on moving home if the equity release is redeemed. However, you must be aware of the possible early repayment charges if the lifetime mortgage plan is paid off when moving house. Many providers charge an early repayment penalty, typically if the deal is cancelled within five years, or particular government gilts have fallen since the signing of the contract. Considering the high costs of cancellation, not enough equity may be left over to invest in a new property, so moving is generally a viable option for those who wish to transfer the equity release deal rather than cancel it altogether.

Nevertheless, to establish the exact position of your existing equity release mortgage obtain a current redemption statement which your equity release consultant can request on your behalf, with an appropriate client authority. From there an equity release calculation can be made to ascertain how much can be borrowed and the necessary recommendations can be made from there.

If you are looking at applying for equity release, or have an existing equity release scheme & considering moving home then contact Equity Release Supermarket team now on 0800 678 5159.

If you are considering taking equity release and early repayment maybe on the horizon, then selecting the right equity release plan is essential to avoid potentially high penalties. Here we illustrate the pitfalls of early repayment of an equity release scheme and what to look out for, if one day you are considering paying off your plan early.

Equity release schemes are in simple terms a mortgage that runs for your lifetime & commonly has NO monthly repayments. The principle reason for the growing popularity behind equity release schemes is that they enable you to free up the equity tied up within the bricks and mortar of your home.

With hindsight, once we all reach retirement age we should all have sufficient income & capital in the bank to meet our retirement objectives. However, such forward planning doesn’t always materialise for one reason or another; ill-health, redundancy or poor investment return can always interrupt anyone’s best laid plans. So what contingency plans can one put in place, or how can one minimise the risk of achieving retirement age without the funds to enjoy the longest holiday of your life?

Equity release schemes

We have witnessed the virtues of equity release mortgages & how they have come to the rescue of many retirees over the past 15 years. However, what can be a life saver initially can become a financial liability in the future unless professional equity release advice is provided by a qualified & experienced lifetime mortgage adviser.

One of the fundamental advances in the emerging equity release market is the protection this industry is now affording to its customers. With FSA (Financial Services Authority) regulation, trade bodies such as the newly formed Equity Release Council (formerly SHIP) & in-built protection features such as the no-negative equity guarantee, equity release clients have never been more re-assured of the improvements in these lifetime mortgages for the over 55’s.

What are the potential pitfalls of equity release schemes?

One area that hasn’t seen much improvement in the equity release marketplace would be the impact of early repayment charges (ERC’s). As equity release providers are lending over a potentially long duration; in some cases in excess of 40 years, they need to set their long term borrowing plans accordingly. Equity release on the face of it may seem very profitable to lenders, however for a large initial outlay it can be many years before they receive their capital & interest in return. To ensure that their profitability & future of the plans remains they must make contingencies in case of early surrender.

Hence, like any mortgage the lender, equity release providers need to include a penalty on early repayment of an equity release plan. To many this would not be seen as an issue as we may have all experienced some form of ERC with our mortgage companies in the past. The difference between residential penalties & equity release penalties are the basis of, the size, & duration that the penalties can be levied over.

What kinds of penalties are charged?

Whereas all residential mortgages charge some form of fixed penalty over a fixed number of years, equity release schemes in general are nothing like. The majority of lenders have now reverted to the old Norwich Union formula of using government gilts as the basis for their early repayment charge. Companies that have now followed suit are Just Retirement, more2life, Partnership, Stonehaven and more recently New Life Mortgages switched from a fixed rate basis onto gilts also.

However, there are a couple of exceptions to this rule who come from the likes of: –

LV= (Liverpool Victoria) – who still use a fixed penalty of 5% of the capital borrowed in the first 5 years to 3% in the next 5 years, then nothing thereafter.

Hodge Lifetime – who use a combination of a fixed rate penalty over 5 years and swap rates which relate to the long term effect of interest rates. However, they do have the advantage that if you move after 5 years, then no ERC’s will apply. Additionally, they permit 10% overpayments each year without penalty.

Is it all gloom and doom?

The answers to this could be both yes and no; depending if you have an existing equity release plan or not.

For equity release customers who took out a gilt related plan in the past it could be bad news. However, remember this is only bad news if you intend to repay early! If you have no intentions of early repayment, then no ERC’s would be applicable. All equity release schemes will NOT apply any penalty on repayment of the equity release due to death or long term care. Additionally, with the Equity Release Council (SHIP) rules in place if you are moving or downsizing you can take your existing scheme with you with no penalty. Equity release schemes have clearly made it known they are a lifetime mortgage. Therefore, the plans are not designed to provide short term borrowings.

You could however hedge your bets on occasions, but as the phase goes…let the buyer beware. For instance, with gilts rates currently at such low levels, unprecedented in the years that equity release has been around, could now be a good time to consider a gilt related equity release plan over the medium term?

The reason for taking out such a plan now would be the fact that these gilt related ERC equity release providers will not levy an ERC should the gilt rate have risen since the mortgage was taken out. In fact companies such as Aviva won’t charge an ERC if the gilt rate remains the same or even falls by a margin of 0.12%.

It is a gamble, as there is still much uncertainty in the economy, but the markets would expect that gilts are sure to go back up in the future when interest rates maybe rise. When though is the golden question.

So, gauging which equity release scheme is the best doesn’t all boil down to interest rates. A combination of assessing your future plans and how much, and when you actually require these funds can be just as important.

Afterall, what is the point of taking out an equity release plan with Aviva an interest rate of 5.66%, when upon early repayment you could be charged an enormous penalty of upto 25% of the amount you originally borrowed! It may be better to pay a slightly higher rate, with the knowledge that you either have no penalty or at least a known penalty from the outset.

Having an experienced equity release adviser is paramount in helping to decide which is the best equity release scheme, for your particular circumstances. By not only looking at your current situation, but also your future plans; your requirements now and also in the future will help your adviser assist in making the right equity release decision for you.

Equity Release Supermarket provide independent equity release advice from the whole of the market. Having the experience of actually working with the likes of Aviva, Prudential, NatWest and Norwich Union, gives our advisers the advantage of knowing the ins and outs of lenders early repayment charges and being able to give quality advice.

SHIP (Safe Home Income Plans) will relaunch itself as The Equity Release Council and expand membership applications to include equity release advisers, solicitors, surveyors and any other relevant organisations.

From now on, all areas regarding equity release advice & products made available to the general public will be covered by this new body. This will aim to ensure consumers are fully protected & aware of equity release mortgages & what they are entering into.

There will be a new Equity Release Council website that will front the trade body whereby consumers will be able to identify equity release advisers, the providers, equity release solicitors & other organisations that will abide by their standards.

Headed by new appointed chairman Nigel Waterson, the Equity Release Council will help oversee the new direction of the Council. Andrea Rosario’s role moving forward will be involvement in the more daily aspects of the organisation.

Additional appointments will be Chris Pond who will head the Board & determine & fulfil the rules that members must abide by. A technical committee will work with all members of the Equity Release Council to assist with moving the equity release market forward & make improvements along the way. This aims to create a more positive attitude towards equity release schemes in general for advisers & alike.

Commenting on the newly formed organisation Nigel Waterson said – “This is a really significant day for thousands of older people in the UK. After an extensive engagement process, equity release schemes now have a trade body which represents the entire sector – The Equity Release Council. “

“This is excellent news for the industry as by working together we can ensure that government and potential customers understand the benefits that equity release can provide.”

Andrea Rozario also commenting – “With equity in people’s homes likely to be at the heart of many people’s retirement planning now and in the future, it is vital the equity release industry, adapts to meet consumer needs.

Ms Rozario also added – “The launch of the Equity Release Council provides us with an excellent opportunity not only to make equity release products easier to access for customers but to encourage more product development to meet UK consumers’ changing retirement needs.”

Chris Pond’s comments followed – “Equity release could help many people meet their needs in retirement & a better quality of life, meeting the costs of long-term care, giving a helping hand to a younger generation or just clearing debts. But the market for equity release can only grow if the public and policymakers have confidence that the highest standards of consumer protection will be maintained.

“That’s why it’s important that all those engaged in equity release sign up to a code of conduct that meets consumer needs. The Equity Release Council will fulfil a vital role in building on the work of SHIP by extending that commitment throughout the industry.”

These changes and strengthening of the equity release market, further underlines the commitment of this lifetime mortgage industry to helping the over 55’s fulfil their retirement years with financial peace of mind.

Equity Release Supermarket also underlines their commitment by supporting such movements in the development of greater understanding of equity release plans. Thus, if you have any questions on these equity release matters please call us on 0800 678 5159 or email admin@equityreleasesupermarket.co.uk

With interest rates being so low, and investments so sluggish, many people who had retired on a nest egg are starting to struggle. The crisis seems far from over so it might be time to consider other options for “topping up” those savings and the income that they create with a home equity release scheme.

Most home equity release plans come in many forms but the most common one now is the lifetime mortgage. This style of equity release mortgage is only available to those over the age of 55, as they include special features exclusively designed for elderly and retired people. This more vulnerable age group now has the protection of the FSA (Financial Services Authority) & the trade body currently undergoing reformation which is SHIP (Safe Home Income Plans).

Changing attitudes & beliefs

These property equity release plans are designed to be secured on properties which have had most or the entire existing mortgage paid off. Equity release is essentially a re-mortgage, but with special consideration taken into what stage of life the homeowner is in. The statistics show that retirees are now living longer and have a renewed vigour & enthusiasm that has rekindled that sense of adventure from years gone by.

Why? The whole idea and acceptance that we are only here once; so ‘let’s make the most of it’ attitude.

Home equity release schemes are a great way of topping-up a retirement pension, as they can be arranged to either provide an additional amount of “income”, by slowly releasing the equity from a home in a controlled manner. Otherwise, they can provide a lump sum of cash which can go top-up an emergency fund, or to provide capital that can be used for a lifestyle purposes such as home improvements, a new car or holidays.

New lending approach from equityrelease companies

The benefits of today’s range of home equity release schemes are that they provide excellent value for money, given that equity release interest rates are the most competitive ever. Interest rates are now available from the likes of AVIVA starting from just 5.57% dependent upon age, property value & equity release scheme taken.

This new approach to equity release lending takes more account of how potentially profitable a plan is to them. We have already seen this to some degree with LV= who operate a tiered interest rate structure dependent upon age. Basically, the older the youngest applicant is, the higher the interest rate becomes. The principle behind this is, the younger one is, the longer their life expectancy should be. Consequently, the longer the equity release plan runs for the greater the final balance which results in a greater profit margin for the lender.

Makes business sense, or does this? Only time will tell, however from the initial feedback and rates being made available from the Aviva trial program indicates that considerable reductions in interest rates can be made, even with the offer of the free valuation and upto £1000 cashback!

What effect does this have on the children?

For those looking for the lowest interest rate on a home equity release mortgage a lower interest rate will save £1000’s over the long term. This will reduce the financial burdening of compound interest from day-to-day with the mortgage arranged so that the additional cost of interest charged is taken from the equity in the home. This means that the burden is shifted to the inheritance estate, or to when the home is sold when the policy holders are in care or downgrade their home. In each of these cases, it is likely that the market will be more buoyant and the home will have more value anyway as hopefully property values will have risen over the duration of the home equity loan period.

With savings taking such a beating due to low interest rates and pensions being punished so hard by this crisis, many retired people are struggling with their finances. Sometimes products like home equity release schemes can help and provide some extra comfort and peace of mind. They can top-up the incomes provided through annuities or drawdown pensions, and are usually available on terms which are more flexible and costs effective than those taken out in years gone by.

Equityrelease is an important decision. However, with the help & support of specialists in the field of lifetime mortgage and home reversions plans such as Equity Release Supermarket we can find the best equity release deal for you.

No matter your location in the UK or Northern Ireland we have equity release schemes covering these locations. So either pick up the phone & call 0800 678 5159 & speak to one of the equity release team or click here to find your local equity release adviser.

These are lifetime mortgages and home reversion plans. To understand their features and risks, ask for a personalised illustration.

News today in the equity release sector, is that Stonehaven’s range of equity release schemes are now available in mainland Scotland.

Stonehaven have been providing equity release mortgages in England and Wales since August 2006. However, due to strong demand for its range of interest only lifetime mortgages entitled ‘Interest Select’ plans, they have now incorporated the Scottish legal process into their equity release application. Therefore, with previous limited availability in Scotland for interest only lifetime mortgages, this should come as a great relief for many over 55′s in Scotland needing financial support for their retirement.

Why Has the Stonehaven Interest Select Plan Become So Popular?

Opinion is split whenever deciding to take a release of equity from a retiree’s property. Gone are the days when a one-off tax free lump sum was the only option. With the increasing flexibility in the market such as the drawdown lifetime mortgage & new enhanced equity release schemes, lenders are looking more towards ‘niche’ equity release plans.

Having captured the interest only mortgage market for the over 55′s, Stonehaven who were originally funded by Santander have come, gone, & are now back with there revised range of Interest Select Options & Lump Sum Plans. With healthy lending for 2012 & with the backing of a large mutual enhanced annuities provider, Stonehaven are now broadening their horizons & diversifying into Scotland.

People over the age of 55 are looking at different means of releasing equity from their property. Not only that, there are different financial attitudes towards their property & ultimate inheritance. This has increased awareness of the impact that roll-up equity release schemes have had on people’s inheritance on schemes previously taken out. Due to the compounding effect of the interest on roll-up schemes, many retirees have turned up their noses to conventional equity release mortgages.

This is where Stonehaven as an equity release company has benefitted. Possibly due somewhat to the demise of the Halifax Retirement Home Plan, Equity Release Supermarket advisers have seen a significant rise in enquiries for an interest only lifetime mortgage. There is a strong demand for an interest only mortgage for the over 55′s, and this signifies the fact that a majority of pensioners still have income to support a retirement mortgage. This age group has many advantages to prospective mortgage lenders, however for reasons discussed later in this article, they are significantly overlooked.

Why have Mortgages for Pensioners been Overlooked?

With a large proportion of equity in their properties, hence low loan-to-values, usually a good credit history & repayment record, the over 55′s are favourable for a mortgage where interest only repayment is only required. The Stonehaven range of Interest Select Plans have given this situation much thought, not only to the positive aspects, but also to the negatives in particular if someone encounters financial difficulties during the term of their plan. They have a specific ‘safety net’ in place that has the option that upon missing 3 monthly payments, or the planholder opts not to make anymore monthly payments, the plan can converted over to a roll-up lifetime mortgage. This removes any concern over incurring a poor credit record & eliminates any risk of repossession.

In addition the Protected Equity guarantee is available which can ensure that your beneficiaries receive a percentage of the final sale value of the property. Peace of mind for sure.

The Interest Only Mortgage Ticking ‘Timebomb’

Previous articles have discussed the FSA (Financial Services Authority) crackdown on mortgage lenders offering interest only deals. Correctly, this has made pre-retirement applications for interest only mortgages more stringent & more capital & repayment mortgages are now taken as a result.

However, this sweeping clampdown has also impacted on the post-retirement mortgage market. It seems the old adage ‘tarred with the same brush’ has been applied to the whole demographic mortgage population. It shouldn’t, as a different set of rules & principles apply to mortgages in retirement. Retirement mortgages should be made more available on an interest only or capital & repayment basis. There should be more understanding from the powers that be that the needs of pensioners are significantly different than those pre-retirement.

Retirees do not necessarily need, or want the eventual repayment of capital. Considering the FSA are regulating & accepting the principle of roll-up equity release schemes, then why the reluctance for interest only mortgages in retirement?

Exceptions should be made & this sector of the mortgage market be subject to a further review.

Nevertheless, one company who has received FSA & SHIP (Safe Home Income Plan) approval for its interest only retirement mortgage is Stonehaven. With foresight of circumstances to come & which were conceived over a decade ago, Stonehaven are currently, & will be, reeping the benefits.

Endowment shortfalls are now becoming more evident & with Aviva only expecting 1% of its low cost endowment plans to meet their targets in 2012, then we can see why mortgages into retirement are going to become a common occurrence. In addition for many reasons people are approaching retirement with a mortgage and no form of repayment. With lenders such as Santander, Woolwich, Halifax & Nationwide not extending terms for those reaching the end of their interest only mortgage terms, a solution for their plight needs to be found.

Stonehaven Solutions

Well, this is where Stonehaven see’s how their interest only lifetime mortgage can resolve such issues. Dependent on the size of the mortgage & property valuation, Stonehaven maybe be able to assist. By using the Stonehaven equity release calculator, one can ascertain the maximum amount they could lend & hopefully assist in remortgaging from the previous lender. This would be the ideal situation, but not always the best. Alternatives should be considered such as downsizing, using savings or getting assistance from family & friends, however this may not be in the best interests of the mortgagors & family ties may over rule such as decision.

If Stonehaven can raise sufficient equity on your property to repay the mortgage, it would mean transferring onto a lifetime mortgage product which then eliminates any concerns over repayment in the future. In fact repayment is only required upon 2nd death or moving into long term care. The only obligation during the term is to maintain interest only payments which will remain EXACTLY the same for life due to the lifetime fixed interest rate which currently start from 6.08% (6.40% typical APR).

Home reversion schemes have literally had their nose pushed out of the equity release market upon entering the year 2012. There has been a significant rise in the popularity of lifetime mortgage plans; including drawdown equity release schemes, enhanced equity release schemes & interest only lifetime mortgages.

Figures produced by SHIP (Safe Home Income Plans) show that home reversion plans now only account for 2% of the whole equity release sales. Drawdown lifetime mortgages popularity has captured 62% of applications & conventional lump sum equity release sales amount to 36%.

It is clearly evident to see the sincere lack of home reversion applications. Here we look at the mis-conceptions surrounding home reversion schemes & why they must still be considered in the overall equity release scheme of things!

First let’s look at the home reversion plan basics..

The home reversion scheme requires the property owner to sell part or all of their property in return for a tax free lump sum. The lump sum offered by the reversion company will always be at a discount to the percentage sold. The reason for this is that the applicants can remain living in the property for the rest of their lives, rent free. Significantly, it could be some time before the home reversion lender receives their money.

No interest element is attached to home reversion schemes. Unlike lifetime mortgages, home reversion offers guarantees as to the percentage of the property that will pass to the beneficiaries at the end of the day. This stems from the initial decision made as to how much of the property’s title is transferred to the lender. For example, if 55% of the property is sold in exchange for a lump sum, then this will still guarantee 45% of the eventual sale proceeds will pass to the beneficiaries. This is a major advantage of home reversion schemes over lifetime mortgages & provides peace of mind.

So why the lethargy surrounding home reversion plans?

Perhaps one of the major stigmas attached is the fact that you will not own your property 100%. The reversion provider will co-own the property with you, thus having a greater say in its maintenance & future planning of the home. They will have the right to inspect the house at regular intervals to ensure it is maintained adequately, thus protecting their security. Any major home improvements will also need their permissions in case you were thinking of extensions or knocking down walls!

Another consideration would be upon moving home or wanting to sell. At this point an equity release calculation would need to be undertaken to establish how much equity you own based on current value upon transfer across to the new abode. Therefore independent valuations would need to be conducted to ascertain current market value. This could prove difficult in today’s market with a lack of sales & depressed housing market.

The one danger of home reversion plans is upon early death. Home reversion would prove expensive should you die or move into care in the earlier years of inception. Effectively, you have given up a large portion of your home based on average life expectancy. If you fail to reach this date, then home reversion could prove a poor decision. On the flip side, if longevity is in your family genes, then home reversion could be a great decision. Oh the virtues of a crystal ball!

Nevertheless, this aspect of the housing doldrums could actually have a positive accent as to why a home reversion plan could be more advantageous than a lifetime mortgage scheme. By taking out a home reversion scheme in anticipation that property values will remain static could prove beneficial. Afterall you are guaranteed that at the end of the day some equity will remain as you have a percentage of the property value guaranteed.

Compare this to lifetime mortgage schemes where the roll-up of interest compounds yearly & will continue escalating until the plan expires. In this situation, should property values remain static, then with a continuously rising mortgage balance & static house prices, will lead to the eventual erosion of the equity. This could be so much so, that NO equity remains at the end of the day with a lifetime mortgage.

So why should you consider a home reversion scheme?

As you can see the home reversion plan offers a sense of assurance which is not possible with many other equity release schemes. With the progress in medical science, the human body is capable of living much longer. Age therefore plays a major role in this equity release plan with a minimum starting age of 65. Indeed, the older one gets before taking out a home reversion scheme the better the terms that will be offered by the lender. The resultant effect of this is the older the homeowner, the more is paid as a capital lump sum.

Some of the negative issues surrounding home reversion schemes have been addressed by the providers – Bridgewater, New Life Mortgages & Hodge Lifetime. Particularly Bridgewater have considered many of these issues & allayed such fears by building in a series of plan options. Similar to drawdown lifetime mortgages, Bridgewater offer a flexible equity release plan which allows you to sell less than 100% of the home & still provide the guarantee of future withdrawals in the future.

Another home reversion plan flexible feature could be a ‘secured escalating release’ option which allows you to release a lump sum of cash now, together with a future income over a number of years. This is achieved with the use of annuities.

Finally, some home reversion plans could also offer protection on early death, so always make the necessary enquiries before entering into a long term financial commitment.

Home reversion redemption

The home reversion company will eventually receive their money by selling the property when the occupier has died or moved into long term care. Additionally, this type of home equity scheme offers the property owner the ability to change properties. This is a requirement of SHIP (Safe Home Income Plan).

Always take the assistance of an independent financial advisor so that they can help estimate the value of your property and help you decide on the scheme best suited to your requirements. Equity release is very beneficial for retired individuals who do not have a steady flow of income or require a capital lump sum for lifestyle improvements. One of the products that could succeed with these bequests could be the home reversion scheme as it offers stability, guarantees for your children and allows you to enjoy a worry free, rent free retirement.